A statement posted on the Vatican website at midday on Wednesday confirmed the Pope had accepted a letter of resignation from the Bishop of Limburg, Franz-Peter Tebartz-van Elst.
Tebartz-van Elst was summoned to see Pope Francis in Rome in October last year and was then sent on leave.
But at the time it was unclear how long the 54-year-old would be relieved of his duties for and if he would return.
The bishop caused controversy for spending millions of euros on his new headquarters in Limburg, central Germany, which included a bath that cost €15,000 euros, a conference table for €25,000 and a private chapel that cost €2.9m.
The Vatican statement said Pope Francis had accepted the resignation in light of the investigation into construction costs at Limburg.
It added: "The outgoing bishop...will be charged at an appropriate time with another task."
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